Axelrod (1984) made a major contribution to Game Theory in his book “Evolution of Cooperation” but thirteen years later he, dissatisfied with game theory, moves onto agent based modelling to rework his view of cooperation in his book in 1997 “The complexity of Cooperation: Agent-based Models of Competition and Collaboration”. In a similar move, the Santa Fe Institute in the US was established in 1984 to grapple with complex social issues and used agent based modelling amongst other techniques to “collaborate across disciplines, merging ideas and principles of many fields — from physics, mathematics, and biology to the social sciences and the humanities — in pursuit of creative insights that improve our world”. Additionally, the EU acknowledges the failure of traditional economics so adopts agent based modelling.

Agent based modelling captures the interaction between agents to simulate emergence whether at the physical or social level. NetLogo provides an extensive library of simulations of both physical and social emergence that shows the diversity of application of agent based modelling. These sample simulations can be readily tailored to meet the needs of social scientists. The software is free and there is a thriving enthusiastic community support group.

Why is there a move by a prominent game theorist, the Santa Fe Institute and the EU to agent based modelling? The article Game Theory as Dogma by Professor Kay (2005) discusses ample reasons to search for alternative techniques to model competition and collaboration and emergence in general. For instance,

The trouble with game theory is that it can explain everything. If a bank president was standing in the street and lighting his pants on fire, some game theorist would explain it as rational. (Kay 2005, p. 12)

Sustainability, social progress, environmental protection, economic growth and energy are discussed using the sustainability framework in Figure 1, where sustainability is at the confluence of social progress, environmental protection and economic growth.

One positive aspect of the global financial crisis (GFC) is the clarity of the failure of neoclassical economics to predict the crisis and of its complicity in fermenting the crisis. This clarity of failure and complicity is positive because failure is a source of learning that is to take a new direction away from the neoclassical favoured by the American Economics Association and its journals and their hold on the profession. The newly formed World Economics Association (WEA) provides the economics profession such an avenue. An open letter to join the association is below. Read the rest of this entry »

Tasmanians, with a relatively low carbon footprint, are set to gain significantly from the carbon price once tax and pension changes are factored in, while Queenslanders — heavily dependent on coal to generate electricity — will wear the biggest increase in power prices, according to economic models run on “supercomputers” at The University of Queensland.

The study estimates an average 8.9 per cent increase for retail electricity prices in the five eastern states, due to the carbon price — below the 10 per cent rise estimated by the federal Treasury. This runs counter to claims that Treasury has underestimated the impact of the carbon price on the economy. Read the rest of this entry »

Helge Nome: The key to controlling humans does not lie in building fences around them, but to steer their minds away from unwanted questions.

The elimination of courses in the history of economics has contributed to the Global Financial Crisis (GFC) by eroding institutional memory that allowed the dismantling of structures designed to prevent a re-occurrence of the Great Depression. With little space in the curriculum for reflection on the past, graduate economists feed on a diet of neoclassical mathematics produces an extreme form of bounded rationality where history is both irrelevant and unknown, which makes for a very powerful ideology by steering minds away from unwanted questions. Read the rest of this entry »

This article discusses how neoclassical economics has contributed to the Global Financial Crisis (GFC). In particular, how two neoclassical theories, the Real Business Cycle (RBC) and the Rational Expectations Hypothesis (REH) contributed to the GFC and how these theories are false and unscientific.

Edward C. Prescott and Finn E. Kydland were awarded the 2004 Nobel prize in economics for their work in developing the RBC and Robert E. Lucas Jr. was awarded the 1995 Nobel prize in economics for developing the REH. They have been nominated for The Dynamite Prize in Economics that is to be awarded to the three economists who contributed most to enabling the GFC. The Dynamite Prize in Economics nominates Prescott and Kydland ‘for jointly developing and popularizing “Real Business Cycle” theory, which by omitting the role of credit greatly diminished the economics profession’s understanding of dynamic macroeconomic processes’ and nominates Lucas for ‘his development of the rational expectations hypothesis, which defined rationality as the capacity to accurately predict the future, both served to maintain Friedman’s proposition that monetary factors do not affect the real economy and, in the name of “rigor”, distanced economics even further from reality than Friedman had thought possible.’ Read the rest of this entry »

This article discusses why Computable General Equilibrium (CGE) models are important to the G8 or G20 protests and why CGE models are unsuitable for policy analysis for the following two reasons, CGE lacking microfoundations and the dual instability problem.

First, why are CGE models important to the G8 or G20 protests? An example of a global CGE model is the Global Trade Analysis Project (GTAP 2009) coordinated by the Centre for Global Trade Analysis, Department of Agricultural Economics, Purdue University. GTAP (2009) claims that their model provides a common language for global economic analysis; they cite the use of GTAP in three of the five quantitative studies at the 1995 conference of the WTO’s Uruguay Round Agreement and in virtually all the quantitative work for the 1999 Millennium Round of Multilateral Trade. This example indicates the credibility and perceived importance of CGE. Read the rest of this entry »